BRICS Back

Resurgent growth is reviving one of the past decade’s hottest trades.

Emerging-market investors are again piling into the so-called BRIC nations — Brazil, Russia, India and China — pushing monthly inflows and stock prices to nearly two-year highs. The bet is that a pickup in the global economy will fuel demand for the countries’ commodity exports, drive an expansion of middle-class consumption and help them shore up fiscal accounts.

Wooed by India’s efforts to streamline regulations, Brazil’s economic rebound, stabilizing prices for Russian oil exports and China’s stronger currency, traders are warming to the countries’ higher yields and better outlook for equities. It’s an abrupt reversal after they were scorched by a 40 percent drop in the biggest BRIC exchange-traded fund from the end of 2012 through early 2016 as Brazil lost its investment grade, Chinese growth slowed from a meteoric pace, Russia’s oil revenue plummeted and India’s current account deficit swelled.

“Improving fundamentals, attractive valuations, and high yields in a yield-starved world make emerging markets once again attractive, including some of the BRICs,” Jens Nystedt, a New York-based money manager at Morgan Stanley Investment Management overseeing $417 billion in assets, wrote in an email.

Non-resident portfolio flows into BRIC nations rose to $166.5 billion last month, up from $28.3 billion in outflows 12 months prior, according to data compiled by the Institute of International Finance and EPFR Global. Chinese equities saw their biggest quarterly inflows in two years, while traders piled into Indian bonds at the highest level in almost three years, Bloomberg data show.

Mark Mobius, executive chairman of Templeton Emerging Markets Group, favors Brazil, China and India, adding that Russia will also benefit from a growth rebound. Brazilian assets will benefit as Latin America’s largest economy bounces back from two years of contractions, while Chinese investment will pick up as its foreign reserves recover from a six-year low in January, according to Steve Hooker, who helps oversee $12 billion of assets as an emerging-market money manager at Newfleet Asset Management.

Fastest Growth

Coined in 2001 by former Goldman Sachs economist Jim O’Neill, “BRICs” became a ubiquitous shorthand for the fastest-growing emerging economies (other investors later capitalized the S and added South Africa to the mix).

In the decade ending Dec. 30, 2012, developing-nation equities had annual returns of 17 percent, twice those of developed nations. That changed in the taper tantrum years amid fears that the Fragile Five, which included Brazil and India, would struggle to meet high external funding needs. Responding to changing sentiment, Goldman Sachs Group Inc. shut its BRIC fund in October 2015 after losing 88 percent of its assets since a 2010 peak.

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Mt Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

 

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South Africa’s Colour Divide Affecting Mining

South Africa’s latest mining overhaul could be mired in a long legal battle after producers vowed to stop the changes even as the government said it’s time the black majority benefits from the country’s mineral wealth.

Mineral Resources Minister Mosebenzi Zwane unveiled new rules for so-called black economic empowerment, including tougher ownership requirements, a community-development tax equal to 1 percent of revenue, and expanded quotas for buying goods and services from black-owned companies.

The Chamber of Mines, which represents South Africa’s biggest producers, plans to start fighting the plan in court as soon as next week.

“This charter’s not going to see the light of day anytime soon,” Peter Leon, the Africa co-chair at law firm Herbert Smith Freehills LLP, said by phone on Thursday. “We’re looking at years of protracted litigation.”

 

Producers are fuming after having been kept in the dark on the details of the updated Mining Charter and the chamber refused to attend a last-minute meeting with Zwane’s department earlier Thursday, saying it wouldn’t be coopted into lending support.

The new rules, which don’t give credit for deals already concluded and from which black shareholders have since divested, will deter investment and serve as a “nail in the coffin” for the industry, said Steve Phiri, the chief executive officer of platinum producer Royal Bafokeng Platinum Ltd.

Court Battle

“We’re confident of our prospects in court,” he told reporters in Johannesburg. “I would not rule out the possibility of this matter being decided by the highest court in the land.”

Miners would still prefer to reach a negotiated solution but are prepared to fight the changes if needed, Chamber of Mines President Mxolisi Mgojo told reporters.

Under the new rules, companies must ensure that their South African assets are 30 percent black-owned within 12 months, up from a previous level of 26 percent. If upheld, several of the country’s biggest mining companies would have to sell new stakes, raising the risk of dilution for existing investors.

“The value destruction is hard to quantify and the uncertainty will persist,” Liberum Capital Ltd. analysts including Ben Davis said in a note. “What is certain is that South Africa continues to be a terrible destination for mining investment and assets in South Africa will continue to trade at a discount.”

South Africa holds the biggest reserves of platinum, chrome and manganese and mining companies operating in the country include Anglo American Plc, Glencore Plc and AngloGold Ashanti Ltd.

White Male

The push for increased black ownership of the industry is part of an effort to address the legacy of apartheid and, with its highly paid, mainly white, male executives overseeing hundreds of thousands of workers laboring in some of the world’s deepest and most dangerous operations, the mining industry is starkly symbolic of the country’s persisting inequalities. Yet critics say many deals have mainly benefited the politically connected elite and deter foreign investors.

Mining companies may also be getting caught in the cross hairs of local politics and posturing ahead of the ruling African National Congress’s leadership conference in December, said Theo Venter, a political analyst at North West University’s business school in Potchefstroom, west of Johannesburg.

The party will seek an urgent meeting with Zwane on the charter and is concerned about potential job losses as a result of the new charter, it said on Thursday.

“Given the fact that the mining industry has shed about 60,000 jobs in the last five years, we don’t want legislation that will add to that bloodbath,” ANC spokesman Zizi Kodwa said by phone.

The ANC conference will pit rival factions, including one led by President Jacob Zuma, against each other.

“This is part of an effort by the Zuma faction to provide hard evidence that they are trying to put radical economic transformation into practice,” Venter said. “They are saying: ‘We are not only talking, we are doing something.’”

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

South Africa Recession

South Africa has entered recession for the first time in eight years, data showed on Tuesday, piling pressure on a government facing corruption allegations and credit downgrades.

Data from Statistics South Africa showed the first quarter contraction was led by weak manufacturing and trade, suggesting high unemployment and stagnant wages were dragging down South Africa’s long-resilient consumer sector, analysts said.

Political instability, high unemployment and credit ratings downgrades have dented business and consumer confidence in South Africa and the rand extended its losses against the dollar, while government bonds also weakened.

South Africa’s economy contracted by 0.7 percent in the first three months of 2017 after shrinking by 0.3 percent in the fourth quarter of last year, lagging market expectations of a quarter-on-quarter GDP expansion of 0.9 percent.

It was the first time two consecutive quarters showed contraction — a definition of recession — since the second quarter of 2009, although there have been individual quarters of so-called negative growth in more recent years.

A consumer frenzy helped the South African economy grow by an average 5 percent a year in the five years before the 2009 recession, but it has struggled to register much growth since.

“The slowdown in Q1 was due to much worse results from usually stable consumer-facing sectors that had been the key drivers of growth in recent years,” Capital Economics Africa economist John Ashbourne said.

The worst performing sector was trade, catering and accommodation, which contracted by 5.9 percent, while manufacturing – one of the key sectors – fell by 3.7 percent.

Standard Chartered Bank’s Chief Africa Economist Razia Khan said the “awful” data showed weakness where it was not expected.

“Economy in tatters”

The poor growth numbers will pile more pressure on the ruling African National Congress (ANC) to get the economy back on track faster as it tries to stave off further credit ratings downgrades and stem falling voter support.

Pressure on President Jacob Zuma, including from within the ANC, has risen since a controversial cabinet reshuffle in March that led to downgrades to “junk” status by S&P Global Ratings and Fitch and allegations of influence peddling.

Zuma has denied any wrongdoing over the allegations.

Corruption allegations escalated when local media reported this week on more than 100,000 leaked emails they say show inappropriate interference in lucrative tenders.

“Our economy is now in tatters as a direct result of an ANC government which is corrupt to the core and has no plan for our economy,” Mmusi Maimane, the leader of the opposition Democratic Alliance, said.

South Africa’s Treasury has said it would work to finalise policies critical for boosting confidence and economic growth.

S&P Global Ratings and Fitch last week said risks to South Africa’s ratings include weak economic growth and political uncertainty ahead of the ANC conference in December when a successor to Zuma as party leader will be chosen.

Zuma can remain as head of state until an election in 2019.

Moody’s — whose Baa2 rating is two notches above “junk” — is reviewing South Africa for a possible downgrade.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd